Whether your small business is a partnership or is organized as a type of corporate structure, you should have a set of written bylaws that designate in advance the ways you will handle a variety of situations that may arise. Bylaws are important from an operations standpoint because they provide benchmarks to refer back to as well as protocols to follow. They also constitute an indispensable legal document that outlines the rights and responsibilities of your company's principal stakeholders.

Ownership

Small business bylaws should outline how a company is owned, as well as how its ownership will evolve over time. Include the legal structure of the company, whether it is a partnership or an LLC, as well as how it will allow new owners to come on board in the future. Address the financial contribution that a prospective owner is required to make, as well as the decision making process for admitting new owners, such as whether current owners have to make this decision unanimously.

Decision Making Strategies

Every small business must make an ongoing series of decisions covering everything from how much inventory to buy to which insurance policy to purchase. Bylaws should outline the types of decisions made by each stakeholder. If the business uses a corporate ownership structure, its bylaws should specify how many members will make up the board of directors, how often the board will meet and what types of decisions it will make.

Liability and Indemnification

Because there is potential for customers and even innocent bystanders to be harmed by a small business' activities, its bylaws should clearly state the limits of ownership responsibility, or indemnification, in situations that involve liability. For example, an LLC's bylaws might state that owners will not be held personally financially responsible for the company's debts unless they specifically assume responsibility by offering collateral on a loan. Bylaws may also indemnify owners from financial or legal responsibility for harm done during the course of business activities except in the event of willful misconduct. Consult a lawyer to make sure that the indemnification arrangements in your bylaws are legally defensible.

Exit Strategies

Even if you love owning and operating your business and can't imagine ever wanting to do anything else, it is wise to include provisions in your bylaws that preemptively state the terms and conditions under which you will leave, sell or liquidate your business. Exit strategies might involve provisions for buying out partners or shareholders who no longer want to be involved with the company, as well as terms for agreeing on whether or not to sell the business. For example, your bylaws might state that 75 percent of partners or shareholders with voting rights must approve a decision to sell the company.